This case is before the court on a stipulation of facts by the parties. Brenda and Michael
Linder divorced in 1998, sharing joint custody of their three daughters: Megan, born January 19,
1981; Kathryn, born December 30, 1983; and Sarah, born April 16, 1989. In the Judgment/
Decree Of Dissolution Of Marriage (the decree) signed on March 20, 1998, Circuit Court Judge
John Lewis awarded Brenda Linder $1,033.01 per month in child support and $2,300 per month
in spousal support. The child support was to continue until each child reached 18 or, as long as
the child was attending school and had not married, been emancipated, or died, until the age of
21. The spousal support was to be reduced to $1,500 on February 1, 2002, and reduced again to
$1,000 permanent spousal support on May 1, 2007.

In awarding spousal support, the court found that Brenda Linder had no earning capacity
beyond minimum wage, that she was undertaking a three- to four-year training program to
become a dental hygienist, and that she suffered from a condition that had disabled her mother
and prevented her mother from working. Additionally, the court found that even if Brenda
Linder was successful in becoming a dental hygienist, she would not be able to approach her
previous standard of living.

On taxpayers' 1998, 1999, and 2000 personal income tax returns, $21,600 was deducted
each year for spousal support ($1,800 x 12). That deduction reflected $1,800 per month in
spousal support, not the $2,300 ordered by Judge Lewis. Taxpayers considered $500 per month
of the spousal support to be nondeductible child support, for tax purposes. The Department of
Revenue (the department) determined that all but $1,000 of the payments denominated as spousal
support in the decree was nondeductible child support for tax purposes and sent Notices of
Deficiency dated June 27, 2001, to taxpayers. Taxpayers paid the deficiency in full and appealed
to the Magistrate Division of this court. The magistrate agreed with the department's
determination that only $1,000 of the monthly payments was deductible as spousal support.

Taxpayers then appealed to the Regular Division, arguing that although the reduction in
spousal support from $2,300 to $1,500 per month occurred very near the birthdays of Megan and
Kathryn, that fact was coincidental and the reduction was not associated with those children's
birthdays. The department asked this court to uphold its determination because the timing of the
reduction triggered a presumption that the payments were child support and taxpayers did not
rebut that presumption. Brenda Linder, whose income tax liability would be increased if
payments were treated as alimony for tax purposes, joined the department's argument and also
asked that the assessments be upheld.

III. ISSUE

What is the proper deduction for spousal support?

IV. ANALYSIS

1, 2. The Oregon legislature has expressed the intent "to make the Oregon personal income tax
law identical in effect to the provisions of the federal Internal Revenue Code relating to the
measurement of taxable income of individuals." ORS 316.007. (2) Therefore, the court looks
to federal law to analyze the support payments at issue in this case. Alimony payments, as
defined in Internal Revenue Code (IRC) section 71(b), (3) are includible in the gross income of
the recipient and are deductible by the payor. IRC §§ 71(a), 215. In contrast, IRC section 71(c)
states that child support payments are not taxable to the recipient and identifies situations in
which payments that otherwise would have qualified as alimony are to be treated as child
support, for tax purposes. Any payment not taxable to the recipient would be nondeductible for
the payor.

To determine the nature of each portion of the payments in question, it is useful to look at
the spousal support scheme outlined in the decree. The decree stated, in part:

"The Court finds that Petitioner's basic needs and her additional need for
assistance in acquiring an education are in the amount of approximately $2,300.00
per month for five years, the Court being cognizant of the fact that at the
completion of a five year period the eldest child will have attained the age of 21
years, and the second eldest will have attained the age of 18 years.

3. According to the terms of IRC section 71(c), payments will not be considered spousal
support if they are for the support of the children of the payor spouse. Here Judge Lewis
described the entire amount of the $2,300 as "spousal support." However, the inquiry does not
end there. Although designated as spousal support, this court looks at the substance of the
payments, not merely their form. IRC section 71(c)(2) identifies two situations in which a
payment that would otherwise qualify as alimony under IRC section 71(b) is not to be treated as
alimony.

5. IRC section 71(c)(2)(B) provides the second exception that excludes from the definition
of alimony a payment that would otherwise have been treated as alimony. Subparagraph (B)
states that if the divorce or separation instrument specifies a reduction is to occur "at a time
which can clearly be associated with a contingency of a kind specified in subparagraph (A)," the
amount of the reduction will be treated as nondeductible child support. (Emphasis added.) A
temporary treasury regulation provides guidance as to when an event is one that can "clearly be
associated" with a contingency related to a child by identifying two such situations. § 1.71-1T(c), Q&A-18, Temporary Income Tax Regs, 49 Fed Reg 34457 (Aug 31, 1984).

The first situation arises "where the payments are to be reduced not more than 6 months
before or after the date the child is to attain the age of 18, 21, or local age of majority." Id. In
the case at hand, the first situation is applicable because Kathryn's 18th birthday was December
30, 2001, just one month before the February 1, 2002 reduction from $2,300 to $1,500. That
reduction date is also within two weeks of Megan's 21st birthday, on January 19, 2002.

The second situation arises:

"where the payments are to be reduced on two or more occasions which occur not
more than one year before or after a different child of the payor spouse attains a
certain age between the ages of 18 and 24, inclusive. The certain age referred to
in the preceding sentence must be the same for each such child, but need not be a
whole number of years."

Id. Again, the situation is applicable. There are two reductions that occur within one month of
the date two different children of the payor spouse reach the age of 18. The first reduction occurs
on February 1, 2002, within one month of Kathryn's 18th birthday on December 30, 2001. The
second reduction occurs on May 1, 2007, within two weeks of Sarah's 18th birthday on April 16,
2007. Thus, the presumption of nondeductible child support arises in the case at hand under both
situations described in Question 18.

6. Once the presumption that the payment is child support has arisen, taxpayers lose their
appeal unless they are able to rebut that presumption. That must be done by showing that the
time was chosen independently of any contingencies related to the children. While Michael
Linder claimed at oral argument that it was a coincidence that the reductions were so close to his
daughters' birthdays, the facts do not support his claim. These dates were fixed to coincide with
his daughters' birthdays through efforts of taxpayers' own attorney, Scott Morrill (Morrill), and,
presumably, at taxpayers' request. Morrill first wrote to Brenda Linder's attorney on January 14,
1998 to clarify the issue:

"We believe that the judge's intention for spousal support was that the initial
amount should be paid on a monthly basis until Megan turns 21 and Katy turns
18. This would occur on 1/19/2002, four years from now. After that time, the
first stepdown amount should be paid only until Sarah turns 18, and not for any
period of time after that."

Apparently that letter was not agreed upon by both parties. There followed a letter to Judge
Lewis from Morrill on February 13, 1998, which addressed questions to the judge based on his
memorandum decision. It states:

"Your Memorandum states that the initial spousal support amount of $2,300 per
month should continue for five years, until the eldest daughter turns 21 and the
middle daughter turns 18. The oldest daughter turns 21 in January of 2002, which
is four years. Your Memorandum states that it should be approximately five years.

"Question--Does the step-down date take effect February of 2002 or January of
2003?

"Your Memorandum then calls for a second step-down to occur after the youngest
daughter turns 18. You characterize this to be approximately six additional years.
The youngest daughter, Sarah, turns 18 on April 16, 2007.

"Question--Does the second step-down happen effective May 1, 2007?

"These issues are addressed in Mr. Minson's proposed Judgment * * *. Mr.
Linder would prefer the Judgment to reflect specific dates rather than number of
years. He proposes the first stepdown to occur effective February 1, 2002, and the
second to occur effective May 1, 2007."

The decree reflects the judge's responses to these points and sets reduction dates at February 1,
2002 and May 1, 2007.

7. Taxpayers argue in their Motion For Summary Judgment that the rationale used by Judge
Lewis for the reductions was based upon Brenda Linder's schooling, which would end in three or
four years. The court agrees that Judge Lewis did consider Brenda Linder's schooling when he
set the reductions; however, the presumption is not rebutted simply because the judge considered
something more than just the children's ages when setting the reductions. For the presumption to
be rebutted, milestone birthdays must not have been considered at all. In Hill v. Commissioner,
for example, the presumption was successfully rebutted when the payor spouse showed that it
was a coincidence that the date chosen to eliminate alimony was within six months of his
daughter Christina's 18th birthday. 71 TCM (CCH) 2759 (1996). Those parties had chosen the
date from among a number of dates, depending on contingencies such as remarriage of the payee
spouse and with which parent Christina chose to live. The court stated that the payor spouse had
rebutted the presumption "by showing that the parties chose January 31, 1992, as part of
eliminating a financial impediment to petitioner's remarriage and that it is purely coincidental
that January 31, 1992, is within 6 months of Christina's 18th birthday." Id. at 2763. The facts in
Hill are dissimilar to those in this case and lead to the opposite conclusion -- that the payments
were alimony, not child support. In Hill, the payee spouse sought to alter the dates alimony
would terminate so that she could remarry; her daughter's birthday was never mentioned or
hinted at in any of the evidence before the court. Here, Judge Lewis specifically noted those
milestone birth dates when setting the dates on which alimony would be reduced.

For the presumption to be rebutted under the facts of the case at hand, it would have to be
shown that Judge Lewis did not consider the children's ages at all when setting the reductions.
As the facts show, that simply was not the case. He clearly did connect the reductions to the
girls' ages. And, taxpayers can hardly complain when, as Morrill's letter indicates, it was
Michael Linder himself who requested that the dates be connected with his daughters' birthdays.

When Judge Lewis originally wrote his memorandum opinion several months before the
decree was entered, the older girls would have turned 21 and 18 in five years. As the dissolution
proceedings continued, those birth dates were four rather than five years distant. Taxpayer then
requested and was given firm dates that coincided with his daughters' birthdays because he
wanted to be sure his child support would be reduced at a time when his daughters reached an
age when they would likely leave the home, presumably for college. The court views this as
strong evidence that the reductions depended upon the girls reaching a certain age.

Further support comes from the second reduction, which occurs when the youngest
daughter reaches 18. On this issue the decree provided that after the reduction to $1,500 per
month on February 1, 2002, support would again be decreased on May 1, 2007, just two weeks
after Sarah turns 18 on April 16, 2007. Taxpayers do not contest that this second reduction is
child support and, in fact, did not deduct it as alimony. The court is at a loss to understand how
taxpayers can concede that the second reduction is child support, but at the same time argue that
the first is not child support.

At oral argument Michael Linder claimed those dates were chosen "because they just
made sense to me." He went on to explain that the dates made sense because those dates
"represented the completion of scenarios discussed by Judge Lewis in his memorandum, that
being a period of time for Brenda to complete school and the ages of the children." By his own
admission, the dates were chosen at least in part based upon the ages of the children.

If Brenda Linder had been expected to graduate in January 2002 when the first reduction
was to occur, this would be a closer case. However, when all parties so clearly had the birthdays
of the children in mind for both reductions, the court must find the first reduction was to occur at
a time that can be clearly associated with the happening of a contingency related to a child and
that taxpayers failed to rebut the presumption that the amount of the reduction was child support.
Therefore, the court finds that the $800 per month reflected in the first reduction was properly
characterized as child support, for tax purposes.

Taxpayers state that Oregon law provides that child support orders are established by a
state formula that is presumed to be correct. Taxpayers are not in error. However, the
department did not determine that the court-ordered child support amount was incorrect. It
determined that some of the spousal support was in fact additional child support, for tax
purposes.

Taxpayers extensively discuss Engel's Law, an economic theory, in support of their case.
As this theory was not before Judge Lewis, this court will not consider it. Even if it did, it would
bear little weight, if any, when measured against the legal standards applicable to this case.

V. CONCLUSION

For the reasons stated above, taxpayers' appeal is denied and the department's assessment
is sustained. It is the finding of the court that the portion of the monthly payments at issue in this
case is child support. Now, therefore,

IT IS ORDERED that the Department of Revenue's Motion For Summary Judgment is
granted; and

IT IS FURTHER ORDERED that Intervenor-Defendant's Motion For Summary
Judgment is granted; and

IT IS FURTHER ORDERED that Plaintiffs' Motion For Summary Judgment is denied;
and

IT IS FURTHER ORDERED that Defendant and Intervenor-Defendant are awarded their
reasonable costs.

1. In Oregon, the term used is "spousal support." Both terms are used
interchangeably in this Order.

4. In his memorandum letter of November 10, 1997, Judge Lewis states, in
part:

"I am awarding spousal support to Wife to me[e]t her basic needs
and to help with her school in the amount of $2,300.00 per month
for five (5) years to allow her to get through school and for the
first child to reach 21 and the second child 18. At that time
support will drop to $1,500.00 per month until the last child
reaches 18 (approximately 6 more years) and then to $1,000.00 per
month permanently * * *."

Although the term "five years" appears here as well as in the decree, that
time period never, in fact, affects the payment amounts. As discussed below,
the judge adjusted payment amounts based upon the dates of the second and
third daughters' 18th birthdays.

5. Although the decree does not explicitly state that the alimony payments
will terminate upon the death of the payee spouse, as required by IRC section
71(b)(1)(D), no party has raised that as an issue. The court notes, however,
that there is disagreement as to how this should be dealt with under Oregon
law. See Kemp v. Dept. of Rev., OTC-RD No 4241, WL 477958 (July 27, 1998)
(unpublished opinion holding that under Oregon law spousal support is deemed
to terminate upon death of payee spouse absent a provision in the judgment
providing otherwise). But see Fithian v. United States, 45 Fed Appx 700,
2002-2 US Tax Cas ¶ 50,629 (9th Cir 2002) (unpublished opinion holding that
Oregon law does not clearly impose a termination condition on spousal support
when the decree is silent).

6. It is not clear whether IRC section 71(c)(2)(A) applies under these
facts because the reduction is not stated as occurring on a birthday. However,
the court notes that Judge Lewis had a colloquy with the attorneys regarding
whether reductions were to occur after four years, five years, or specific
dates relating to the daughters reaching certain ages. The colloquy,
discussed later in this opinion, indicates that the judge connected the
reductions to birthday periods, if not exact dates. That methodology could be
said to satisfy this section of the regulation as well. Because of other
grounds for decision, the court need not rely on that analysis.